tv Nightly Business Report PBS September 28, 2010 12:00am-12:30am PST
>> susie: southwest airlines kicks off a high-flying day of deals. it's buying smaller rival airtran, and landing a big foothold at america's biggest airport. >> we'll have more airplanes, we'll have more flights, we'll have more customers, we'll have more jobs. >> tom: the $1.5 billion deal, and what it could mean for the price you pay for tickets. you're watching "nightly business report" for monday, september 27. this is "nightly business report" with susie gharib and tom hudson.
this program is made pose captioning sponsored by wpbt >> susie: good evening everyone. another big name airline merger, this time it's southwest buying airtran. tom, today's deal comes just days before united airlines and continental close on their merger creating the world's largest airline. susie, southwest will pay $1.4 billion in cash and stock for its smaller rival. but, it's a premium of about 70% over airtran's friday stock price. >> susie: investors loved the deal, shares of both companies were up sharply today. erika miller has more on what's behind the merger, and what it
will mean for consumers. >> reporter: for southwest, a big reason for the merger is the southeast. the discount airline carries more passengers in the united states than any other, including the big boys. but analyst jim corridore says southwest has been missing one key, lucrative market. >> airtran presents a very compelling opportunity, because they have a big foothold in atlanta, which is a market southwest doesn't serve. that's a great business market, and southwest is focusing on attracting more business travelers, so that's a nice fit for them. >> reporter: in addition to atlanta, southwest will gain coveted slots in other top business markets, like new york and d.c. morningstar's basili alukos says the acquisition also makes sense for southwest because it wipes out one its biggest rivals. >> airtran has a younger fleet. they have a younger workforce. and those go against southwest because, as a result, airtran has a lower cost structure, so that allows them to compete. it allows them to reduce costs. >> reporter: the merger may signal a shift in strategy at southwest. traditionally, the carrier has
grown on its own, airport by airport. before this announcement, the only merger southwest inked in the past decade was the purchase of bankrupt carrier a.t.a.'s assets back in 2008. now experts think southwest will focus on growing through acquisition. >> the natural extension is to go after carriers in markets you'd like to have a bigger presence, and believe you have a cost advantage-- that you can swallow that competitor and run your operations more efficiently. >> that's not necessarily good news for consumers, because less competition typically leads to higher ticket prices. still, most industry experts are confident the deal will be approved by shareholders and federal regulators. two hurdles analysts see are integrating cultures and integrating fleets, because southwest only flies boeing 737 aircraft. airtran also flies other boeing models. >> it does create complexity. it creates additional costs, but if the opportunities are there to get additional revenue synergies by doing so, it could be more compelling that way.
>> reporter: if the merger is successful, analysts say it could pressure other airlines to join forces. among the most likely acquisition targets are discount carriers like jet blue, frontier, and spirit. erika miller, "nightly business report," new york >> susie: a short while ago, i spoke with southwest airlines chairman and c.e.o. gary kelley. my first question: why did you do the deal? >> first of all, airtran brings us a number of things. they have a safe low cost high quality operation. they have a strong low fare brand. but most importantly, it provides us an opportunity to expand our route network. they fly places that we don't. we have very little overlapping routes. but notably, their largest operation is in atlanta. and we have no service to atlanta at all, as one example. it brings us more access to new
york's laguardia airport, as well as first-time access for us to reagan national airport in washington d.c.. >> susie: where kelly, why did you do it now? >> i feel like we're ready now. first of all, things are so much better today than they were a year ago. our profit outlook is solid. we have plenty of cash on hand. we have a very strong balance sheet, with credit rating agencies affirming our credit rating today. so financially we're very well prepared for this. we also have a very strong leadership team. who is ready to add this major task to our list. and then we have the tools in place today that we just haven't had in the past to optimize our route network and really generate significant revenues from optimizing schedules and also revenue management techniques.
so it's been a very challenging economic environment. we would like to grow. we just haven't had opportunities to grow, and we're just delighted that we found this opportunity where with it we can grow and grow profitably. >> susie: analyst, call this deal a game changer. what do you think is the most important change for southwest? >> well, for us, it will be a challenge to manage the expansion. in other words, compared to our current route network this is about a 25% increase in our expansion. it adds about 8,000 employees to our work force, and we currently have about 35,000 employees at southwest airlines. so we'll need to execute well, we'll need to plan our integration strategy well. and of course we'll be adding a number of new routes, some of those will be stepping away from
a sense from what we've been doing historically, we'll add a lot small markets, we'll be adding new international markets. but again i think we're very well prepared to take that on. and we believe that we can add that growth profitably. >> susie: i'm glad you brought up international, because is that the next step with airtran you get access to mexico and the caribbean. >> we're preparing ourselves for international service. so the effort to acquire airtran and then integrate it into southwest airlines will take us several years. during that time we want to ready ourselves to fly international routes on southwest airlines, three to four years from now. so this is a long-term strategy that we're implementing where we have a significant investment in domestic growth over the next three to five years, followed on by expansion to near international markets after
that. so, yes, it's very exciting for us, there's a lot of work to do but our employees are energized and we think it's going to be very profitable for our shareholders. >> susie: so looking ahead, let's say three years from now, what will southwest look like? give us a quick snapshot. >> well, three years from now you'll see a southwest airlines that covers every major market in the united states. we'll have international service in place. we will have a new frequent floir program, we'll have more airplanes, we'll have more flights. we'll have more customers. we'll have more jobs. and we will certainly have brought more competition and we will have brought more low fares to more places in america. >> susie: it sound very exciting mr. kelley. thank you so much for your time and for coming on "nightly business report". >> thank you very much for having us. >> tom: we'll have more on today's other big deals in
tonight's "market focus," including wal-mart's push overseas and unilever's deal to buy alberto culver. here are the stories in tonight's n.b.r. newswheel: stocks fell despite those big deals. the dow lost 48 points, the nasdaq was off 11 and the s&p 500 fell 6.5. trading volume dipped to start the week. 919 billion shares traded on the big board, under two billion on the nasdaq. 919 million, rather, on the big board. you've heard of sharing the wealth, now federal regulators want banks to share the risk. the federal deposit insurance corporation is requiring banks that sell things like mortgage- backed securities to keep at least 5% of the underlying assets on their books. that way, it's hoped banks will be more careful when screening borrowers. a federal judge says a.i.g. will have to defend itself against a shareholder lawsuit. the company had wanted the suit dismissed. now, a.i.g. will have to answer to claims it misled investors about its exposure to the subprime mortgage market. and president obama today signed the small business lending bill.
it sets up a $30 billion fund to help banks get cash to small firms, and gives them tax breaks as well. >> tom: still ahead, controlling your investment behavior to produce better profits. psychologist frank murtha suggests some steps in tonight's "your mind and your money" segment. >> susie: a better way to handle oil spills. the president's commission investigating the b.p. oil spill today heard suggestions on how the spill response could have been better handled. the oil industry needs to come up with a dedicated person to coordinate spill response. that could work better than letting individual companies oversee their own spills. meanwhile the president of louisiana's plaquemines parish, billy nungesser, told the commission that confusion between b.p. and the coast guard over who was in charge means his area has yet to receive the help
it was promised. >> sitting here today, i still can't tell you who's in charge. when we talk about putting coast guard people-- and i applaud the men and women of the coast guard-- but this was a disaster from the way it was handled from day one. >> susie: the commission also heard from the interior department. it says the six-month moratorium on new deepwater drilling could be lifted before its expires on november 30. >> tom: the war of the electronic tablets heated up today, as research in motion unveiled its playbook to take on apple's ipad and others. rim's effort is called just that, the "playbook." the device has a seven-inch screen-- about half the size of the ipad-- and it weighs less than a pound. unlike the ipad, it will have two cameras, one in the front, the other in back. outside of wifi range, it will be able to access the web by linking to a blackberry. rim says the playbook will be available early next year. the company expects it to be priced in the lower range of competitors.
>> susie: another stock tripped a circuit breaker in today's trading here at the new york stock exchange. tom, this time the stock was progress energy-- that's p-g-n on the big board. apparently, a sell order entered just before 1:00 p.m. had a typo in it, pricing the sale at $4.57 a share-- not the $44.57 where it had been trading. that $4.57 tripped the circuit breaker. remember, any move of 10% or more in a five-minute period triggers those halts.
>> tom: susie, p-g-n shares were halted for five minutes, the bad trade was cancelled, and progress shares closed near their normal levels at $44.43 a share. >> susie: tom, other than that, the trading day appeared to be dominated by lots of mergers and talk of more deals. >> tom: you've got it susie. let's take a look in tonight's "market focus." >> tom: the monday mergers didn't inspire a market rally, but the $10 billion in deals announced today, including the southwest/airtran deal, draws attention to the consumer. the biggest of the deals in terms of money involced, involves wal-mart buying an african mass retailer, looking to jump start its international growth strategy. it is a $4.6 billion offer for massmart of south africa. it's a non-binding deal, as the
two companies continue to negotiate the specifics. however, in johannesburg, shares of massmart closed above the wal-mart buyout price, indicating the market thinks a higher price will be coming. wal-mart stock fell 1%, but on very thin volume. only about half the usual number of shares traded. the company has about $10 billion in cash, or more than twice as much as the massmart offer. the other consumer-focused deal involves the maker of vo5, noxzema and mrs. dash. alberto culver will be bought by unilever. this here is a $3.7 billion deal, giving alberto shareholders $37.50 per share. it continues unilever's expansion in the personal care business, which already includes dove, pond's and vaseline. no surprise, alberto stock jumped on the buyout-- up almost 20%, to $37.64-- above unilever's purchase price. similar to wal-mart's possible deal in africa, the market thinks a better price will be coming for alberto.
these two deals have at their heart the global consumer. analysts say valuations make for attractive dealmaking with consumer companies. just last week, clorox sold its auto care products division, which includes armor-all, to a private equity buyer. buyouts, or at least the potential for them, were in focus in other sectors. regional bank m&t fell 7% on speculation its merger talks with banco santander aren't going well. it was the biggest loser in the financial sector, which was hit by debt downgrades of anglo- irish bank. small-cap energy company harvest natural resources rallied 15% after putting itself up for sale. and micro-cap nighthawk radiology almost doubled. it will be bought by a privately held competitor for $6.50 per share. now, its been a trend lately, when the broad market weakens, even slightly like today,
telecom finds buyers. sprint-nextel doesn't fit the classic case of a telecom stock, because it doesn't pay a dividend, but shares rallied more than 3% on heavy volume. u.b.s. thinks it will report growing wireless revenue after quarters of disappointment. investors weren't shy about some gaming stocks, as another one of the global operators looks to its china business. m.g.m. wants to be the latest to carve out its macau operations for an initial public stock offering in hong kong. the timing or terms haven't been disclosed, but the move sent m.g.m. shares up more than 5%. las vegas sands and wynn already have spun off their macau businesses. las vegas sands hit a new high today, up 4%. wynn resorts, though, fell 3%. it hit a 52-week high last week. finally, some positive results for a medicine to treat hodgkin lymphoma sent shares of its maker, seattle genetics, jumping. the company plans to file for f.d.a. approval in the first half of next year. investors aren't waiting around,
the stock popped almost 18% on 12 times its usual volume. and that's tonight's "market focus." >> tom: in our series, your mind and your money, produced in association with kiplinger's magazine, we've been looking at the effect of psychology on our investment decision making. an essential question of the series has been, what can we do to keep our biases and emotions from leading us into poor investing choices? to give us some answers, our guest tonight, frank murtha, a psychologist and co-author of the new book, "marketpsych, how
to manage fear and build your investor identity." welcome to "nightly business report", nice to see you. >> great to be here. >> tom: it natural for investors to blame or credit the market when they make profit others lose money. but you say it's not about the market, it's about us. so explain that. >> yes. by far the biggest x factor whether people accumulate wealth is their own behavior. and considering that's about the only think we have control over, it pays to focus on that. the data is out there. markets do what they do, but regardless of whether it's bulls or bears, people tend to underperform because they become reactionary. so managing our own psychologist is of paramount importance. >> tom: you have some tips on attacking some of these emotions and pit falls. and it begins with, don't go it alone. now, frank, does that necessarily mean seeking out professional investment advice? >> it can. it doesn't have to mean seeking out professional advice. but at the very least it means involving another trusted person
whom you respect in your decision making process. even if it's just to touch base with this person, check in, let them hold up a mirror to ourselves. we talk a lot about self awareness and how important it is to be self aware. sometimes we need other people to make us aware of ourselves. so by all means, this is a very simple thing that anybody can do, and it's very practical. >> tom: another tip that you have is thing thing long term. how could dedo that when we're inundated with information? >> you make a good point and part of the answer can be in what you just said. limiting that information is a great start. we're constantly being drawn into this short-term market based perspective of our vems, it like gravity. we're not aware of it, but it constantly pulling us down. we have to fight, consciously fight to get out of it. >> tom: another tip that you advise is be self aware. now, again, how do we put that awareness into use for a profitable portfolio long term?
>> a great way to do that is to take a look at some of your past investment decisions, particularly ones that didn't work out the way you wanted to. review them, review them with somebody else. and take a look ago what were the precipitating events what did i do wrong. when you're taking that kind of productive approach, you're going to learn about yourself and you'll get better at making those decisions consciously. >> tom: and finally you advise also to have a crisis plan, despite everything else we've talked about, how does this plan take shape? >> it's all well and good to think of these things in our heads and feel like we've done the work necessary to implement the con sets, unfortunately it's not enough. i'm talking about getting out a pen and paper and countrying out a plan on when the market goes south. part of that machine is going to be having healthy coping alternatives, things we can do that are productive. and lastly finding thing we can do to take advantage of the opportunities. we all know that crisis means opportunity. but the ability to plan ahead and identify what we're going to
do to turn a negative into a positive is part of how we need to be productive. >> tom: frank murtha, co-author of "marketpsych." if you'd like to review any part of our series you can find it on the nbr website at pbs.org. >> susie: here's what we're watching for tomorrow: the s&p/case shiller home price index for july, along with quarterly results from walgreens. our "word on the street" focuses on emerging e.t.f.'s and mutual funds in asia. we'll be joined by debra borchardt from thestreet.com. and, jeff yastine is on deck with the business of baseball, and whether major league teams are recession-proof. can drinking pomegranate juice improve your health? ads for juice maker pom wonderful say yes, but federal regulators say no. so, the federal trade commission today sued the company. the f.t.c. says there's no evidence to support ads claiming
the juice treats or prevents heart disease and other health conditions. pom says the f.t.c. is acting beyond its jurisdiction and plans to fight the lawsuit. >> tom: cisco wants to bring its corporate meeting room technology to the living room. analysts think cisco systems is planning a new consumer version of its telepresence video teleconferencing systems. those systems run about $300,000 each, a consumer version is pegged at around $500. so far the tech giant's not commenting, saying only it will have a major product announcement on october 6. áváváváváváváváváváváváváváváváv
>> susie: while we know the recession is officially over, the recovery itself has been on the ropes. tonight's commentator explains why he thinks that slowness is only temporary. he's richard dekaser, president of woodley park research. >> after starting this year at a healthy pace, economic growth has recently fallen off, fueling angst that the recovery is going off track. but before getting too gloomy, its worth considering some of the unusual-- and temporary-- headwinds that have recently weighed on growth. this summer's housing market collapse, for example, clearly reflects the expiration of once- generous tax incentives. and while the greatest home sale ever exaggerated housing gains when in force, its expiration has also exaggerated weakness more recently. the same can be said about
temporary census workers and their impact on the job market. hiring 550,000 workers during the first five months of the year helped lower unemployment and buoy household incomes, just as shedding a comparable number over the past few months had the opposite effect. ultimately, of course, neither trend is sustainable. additionally, 3.6 million americans lost nearly $5 billion in jobless benefits during june and july, when federal funding ran out. but those benefits have since been reinstated, with back pay for missed payments. and the european crisis of may and june also took its toll, as worries about another financial meltdown discouraged businesses from hiring and investing. but, a bailout from the i.m.f. and the european union has since pulled it back from the brink and nerves have settled down. none of this is to say that the economy is without its challenges. but, it does say that at least part of the summer doldrums can be attributed to unusual circumstances that have either run their course or fully reversed themselves. and by fading further in the rear-view mirror, we should expect growth to improve during the final months of the year. i'm richard dekaser.
>> tom: finally, who said football can't be fashionable? certainly not the n.f.l. today, the league launched a $10 million marketing effort aimed at getting female fans to wear their favorite team colors on more than just game day. new products include more feminine team t-shirts, stylish flip flops, jewelry, purses and jackets-- all containing n.f.l. logos. the hope is that female n.f.l. fans can wear their team spirit for a night on the town, a day at the gym or casual friday at the office. women make up a third of all n.f.l. fans, so this new line may have some potential. >> susie: how about the cleveland browns? i'm going to have to go shopping for my new browns wardrobe. >> tom: there you go. cleveland brown earrings, how about it. that is "nightly business report" for this monday evening, september 27. thank you for joining us. i'm tom hudson. have a great night,. >> suzie:y. >> susie: you too, tom, we hope to see you again tomorrow night.